Comcast Shares Bound To New Highs

3/25/2013


  Recent Price
$40
  Dividend
$0.78
  Yield
1.9%
  P/E Ratio
21
  Shares (millions)
2,687
  Long-Term Debt as % of Capital
36%
  52-Week Price Range
$42.00 - $28.09

Undaunted by the spectacular failures of media conglomerates in the past 15 years, investors keep rallying around Comcast ($40; CMCSa) and its acquisition of NBC Universal.

Comcast shares have soared 76% since it closed on its initial 51% stake of NBC Universal in January 2011, outpacing the 40% gain of the S&P 1500 Consumer Discretionary Sector Index and the broader index's 21% rise. Shares set an all-time high following Comcast's announcement last month that it will accelerate the purchase of the remaining stake from General Electric ($23; GE).

Comcast shares trade at 21 times trailing earnings, a 20% premium to their five-year average. But Comcast's trailing P/E and forward P/E fall in line with medians for S&P 1500 cable and satellite stocks. Given Comcast's growth prospects, the shares warrant a premium to their peers. Comcast is a Long-Term Buy.

Comcast's new look

NBC Universal lets the company straddle both sides of the divide between cable operator and broadcast network.

The traditional cable business (62% of total sales and 80% of profits last year) increased revenue 6% in 2012, with NBC Universal (38%, 20%) generating 13% growth.

Within the cable unit, high-speed Internet (24% of cable revenue) grew 9%, while video (51%) crept up 2%.

On the NBC Universal side, cable networks (36% of segment revenue) increased sales 3%, while broadcast TV (34%) jumped 27% on strong advertising. Sales rose 5% at theme parks (9%) and 12% for film entertainment (21%).

The video unit continues to shed customers — Comcast hasn't reported a rise in subscribers since the March 2007 quarter. But the year-over-year decline has moderated in nine straight quarters, and management claims net subscriber additions would have been positive in the December quarter without Hurricane Sandy.

The cable business has struggled with cord cutters — those who eschew traditional pay-TV service in favor of such products as online streaming video. Their numbers currently stand at 5 million, says Nielsen, up two-thirds from 2007. The soft economy has contributed to the shift, but new technologies should encourage further migration. Content licensing represented less than 5% of Comcast's revenue last year. But with consumers viewing shows on more and different screens, licensing could become a growth driver in coming years.

Comcast expects a low-double-digit increase in programming costs this year, driven up by new contracts with ESPN and Fox. Cost growth should moderate in 2014, potentially slowing to match the 7% rise in 2012.

Of course, on-demand viewing presents fresh challenges for marketers, which could temporarily pressure ad revenues. Moreover, a ratings slump at NBC and the cable networks also threatens to drag on advertising.

Conclusion

Rising analyst estimates call for per-share profits to advance 23% to $2.38 this year on 3% sales growth. A 20% hike to the quarterly dividend, announced in February, pushes the yield to 1.9%. An annual report for Comcast Corp. is available at 1 Comcast Center, Philadelphia, PA 19103, (888) 883-8903, www.comcast.com.

COMCAST
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '12
0.52
vs.
0.47
6%
38.22
-
34.94
20 - 19
Sep '12
0.46
vs.
0.33
15%
36.90
-
31.04
21 - 18
Jun '12
0.50
vs.
0.42
6%
31.99
-
28.09
19 - 17
Mar '12
0.45
vs.
0.36
23%
30.41
-
24.28
19 - 15
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2012
62.57
1.93
0.65
38.22
-
24.28
20 - 13
2011
55.84
1.58
0.43
27.16
-
19.19
17 - 12
2010
37.94
1.29
0.38
22.40
-
15.10
17 - 12
2009
35.76
1.26
0.27
18.10
-
11.10
14 - 9
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
95
77
69
90
66
96
59

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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